Market report: Thursday close

By Mickey Clark for MailOnline
Updated: 12:08 EDT, 11 September 2008

A sharp drop in the price of raw materials has meant mining companies suffered their biggest monthly fall in 11 years during September, and the third-biggest monthly fall on record.

Market report: Latest news from the London Stock Exchange

Broker Cazenove believes the selling has been overdone, and today set about making its case to convince clients to plough more money back into the sector.

It points out that earnings momentum for most of the miners has actually improved, with the decline in metal prices being more than offset by producer currencies, including sterling.

As the copper price starts to find a floor, the market's focus will return to the sector's attractive cashflow profile, particularly among the bulk commodity miners which are beginning to reap the rewards of the huge price increases seen at the end of the first half.

This should help curtail their recent underperformance and reverse it as the sector moves into 2009, says Cazenove.

Among the diversified miners, it has an outperform rating and 1430p target on BHP Billiton, up 26p at 1411p. It also has outperform ratings on Anglo-American (2245p), up 116p at 2311p and Vedanta Resources, up 1p at 1514p (1522p).

An outperform rating is also awarded to Ferrexpo, 1.3p better at 166.3p (167p target) among the single commodity mines. Ferrexpo yesterday lost its place as a constituent of the Footsie 100 index because of the poor performance of its shares of late.

Rio Tinto, up 7p at 4158p, has taken a 14.9% stake in Kalahari Minerals, 2p better at 36¼p, with the purchase of 24.8 million shares.

Weakness in banking and retail left the FTSE 100 down 47.8 at 5318.4.

Over on Wall street this afternoon, Lehman Brothers teetered on the brink after its share price virtually halved to $4. Rival Merrill Lynch was also trading at record lows. The Dow slumped 49.2 to 11,219.6, after the US trade deficit grew to its widest in 16 months.

Back in London, high street banks came under the hammer after the Bank of England said it would next week be announcing details of a permanent successor to its special Liquidity scheme. The new scheme would not provide them with long-term funding.

Note the price of HBOS, down 13p at 286¼p. It hovers close to July's £4 bn rights issue price, having touched 336¼p last month. There were also losses for Barclays, down 8p at 338½p, and Lloyds TSB, 12p off at 283p.

ITV, up 1.1p at 49.9p, may have lost its place in the Footsie 100, but the speculators remain convinced that a bidder will emerge for the independent television broadcaster. Their hopes have been boosted by the news that ITV's former boss Charles Allen has joined Virgin Media, which failed to merge with ITV two years back.

Enterprise Inns, down 4¾p at 229½p, has also lost its Footsie 100 status. Goldman Sachs has lowered its target price on the pubs operator from 240p to 230p and cut its profit forecast for this year and next to reflect the level of support it must offer its tenants in the face of a slump in beer sales. Goldman has removed it from its conviction sell list but rates the shares a sell overall.

Internet security software provider Autonomy, which has won promotion to the top flight, has seen Goldman sachs raise its target from 1410p to 1500p and says the recent pullback in the shares presents a good opportunity to buy. Autonomy fell 2p to 1040p.

There is not much for retailers to cheer these days. Even John Lewis admits times are tough. results from Home Retail, which owns Argos and Homebase, were given the thumbs down with the shares falling 13&frac34p to 228p. Supermarket chain William Morrison lost 16½p to 253¾p. Kingfisher shed 7.4p to 130.1p, while Carphone Warehouse dropped 6.4p to 185.9p after losing its place in the Footsie.

Tomorrow's agenda

French Connection rounds off a busy reporting week for the retail sector with first half figures. The beleaguered fashion chain said in May that like-for-like sales had held steady in the first four months of the year, but analysts now believe sales could drop as the tough conditions hamper revival plans. The performance of its womenswear and wholesale divisions is tipped to have been relatively solid but its menswear arm - traditionally one of the first areas to be hit by a consumer spending slump - is likely to be floundering.
Annual pre-tax profits are forecast to be about £890,000, against £3.1 mn last year.

With the axe being wielded in the City at a furious rate, shares in recruitment specialist SThree have suffered in recent months. But despite 59% of profits coming from the UK, the company has so far proved resilient. Whether it has continued to defy the gloomy jobs market will be revealed with its first-half results.